Register for VAT and save on input costs

March 2023

DR SANDILE NGCAMPHALALA, FARMER DEVELOPMENT LEAD: GRAIN SA

The agricultural sector continues to be a shining sector in the South African economy. Stats SA’s published GDP data in early December 2022, showed growth of about 1,6% in productivity against a market consensus of about 0,4%.

Growth four times higher than expected was largely driven by an increased economic output from the agricultural and farming sector, which enjoyed bumper crops and increased the turnover due to higher commodity prices.

The flipside of the coin is the increased pressure presented by production input costs hikes – estimated at about a 50% increase year on year between mid-2021 and 2022. Farmers are forced to look at every aspect of the farming enterprise to ensure efficiency and secure some savings that can bump up on their bottom line.

Input or value added tax (VAT) is the VAT paid on production inputs and the standard 15% VAT can be claimed back from SARS when inputs are used in the production of taxable supplies. In other cases, a registered VAT vendor qualifies for zero-rate VAT inputs, like fertiliser, seeds and crop protection products. Zero-rated inputs are those typically used in the production process that are charged at a zero rate to registered vendors (farmers) but in the normal cause of business are charged at the standard 15% in the case of non-registered vendors. It is compulsory for a farmer to register for VAT if:

• The value of taxable supplies made in any consecutive twelve month period exceeded or is likely to exceed R1 million; or
• where in terms of a written contractual obligation, the value of taxable supplies to be made in a twelve-month period will exceed R1 million.

VAT registration technically implies that the farming enterprise becomes a SARS vendor responsible for the collection and payment of VAT on behalf of SARS. Therefore qualifying inputs cost 15% less in essence, which is a significant reduction in input costs compared to a non-registered VAT vendor.

VAT REGISTRATION CATEGORIES
The second dispensation relates to the registration category allowing farming enterprise to register under a Category D (six-monthly) tax period provided that the enterprise solely consists of agricultural, pastoral or farming activities – and the total turnover does not exceed R1,5 million per consecutive period of twelve months.

Where the value of taxable supplies exceeds R1,5 million but is below R30 million in any consecutive period of twelve months, the commissioner will allocate either a Category A or B tax period to the vendor (which is a two-monthly tax period).

This implies that VAT returns must be made bi-annually for Category D registered enterprises or bi-monthly for Category A or B registered enterprises.

MORE ABOUT VAT
Zero rate
Any farming enterprise looking to acquire goods at a zero rate must comply with the following requirements:

• SARS must be satisfied that the entity is indeed a farming enterprise.
• The farming enterprise must be in possession of a valid Notice of Registration (VAT201) and the aforementioned authorisation.
• SARS should have issued an authorisation on the VAT Notice of Registration (section 7 for farming, section 9 for diesel rebate), indicating that the goods may be supplied to the enterprise at zero rate.
• A valid tax invoice must be issued for the supply of such goods including the VAT numbers and addresses of the supplier and the farming enterprise.

Tax invoice
A valid tax invoice contains the following:

• The words ‘Tax invoice’, VAT invoice’, or ‘Invoice’.
• Name, address and VAT registration number of the supplier.
• Name, address and where the recipient is registered for VAT, the recipient’s VAT registration number.
• Serial number and date of the invoice.
• Accurate description of the goods and/or services (indicating where applicable that the goods are second-hand goods).
• Quantity or volume of goods or services supplied.
• Value of the supply, the amount of tax charged and the consideration of supply (value and the tax).

OBLIGATIONS OF VAT-REGISTERED ENTERPRISE
VAT registration places certain obligations and record keeping duties on approved farming enterprise. These include ensuring that:

• VAT is collected on taxable supplies.
• VAT is included in all prices advertised or quoted.
• Tax invoices are issued for supplies made, where required.
• Returns are submitted and payments are made on time.
• Documentation is obtained and retained to evidence the liability for VAT.

Proper accounting records and documents are the important compliance aspects of how the whole VAT system operates. These documents form an audit trail which SARS uses to verify compliance with the law. The farming enterprise is required to retain these records for a period of five years. This is key as SARS has the right to cancel the authorisation for any enterprise found in breach.

This includes cases where a farming enterprise defaults on its obligation to submit VAT returns or pay VAT, ceases the farming activities as approved in the VAT Notice of Registration, or utilised the Notice of Registration (with the authorisation) for purposes other than these approved for the farming enterprise concerned.  

VAT calculation
The VAT calculation works in such a way that one must determine the VAT charged (output tax) and calculate the amount of input tax the vendor is entitled to deduct. Pay the difference between the output tax and input tax or claim a refund where the input tax exceeds the output tax for a particular period. 

VAT returns must be made on or before the last business day of the month following the month in which the tax period for the enterprise ends. Late payments of VAT may attract penalties and interest. 

Publication: March 2023

Section: Pula/Imvula